http://veritefx.com/veritefx_blog/20...ly-2009-1.html
The fallacy of an established trend:
I often get questions from other traders about what kind of trend the dollar or euro or pound sterling is in. I trade repeated cyclical price action patterns so the "pain" that goes into finding a trend isn't something I ever really have to deal with. But, in my opinion, the idea that any of the markets like crude oil, gold, the S&P 500, or currency pairs like the EUR/USD and GBP/USD are in some kind of established trend is a joke. Those markets are moving purely based on the two emotions which control the behavior of market participants and dictate where they send their money-flows -- fear and greed.
Right now the Forex, equity, and commodity markets are moving in ranges, not trends. The reason they are moving in ranges is because that's exactly what the central bankers want. It's no coincidence that one week central bankers from the US, Europe, and Asia talk up the dollar and then the next week they talk down the dollar. This isn't bipolar verbal manipulation that's going on, this is a well coordinated, organized, and predetermined plan to keep all the majors and crosses in a specific range.
There is no such thing as a single currency and the fact they are all paired up together means the central bankers need to coordinate their efforts to prevent any one pair from falling into an established upside or downside trend move. The coordinated efforts between the banks are also designed to temporarily prevent the dollar and US dollar Index from breaking through key resistance or support zones. If you were to inject some truth serum into the central bankers they would all tell you the exact same thing I'm telling you now.
Economic and financial agendas need to be met and this requires their respective currency to go through short-term periods of appreciation or depreciation. Take the Swiss for example... right now the Swiss are most concerned with Eastern European debtors paying their Swiss creditors so they are manipulating the value of the Swiss franc. Will it always be in the interest of the Swiss to have a depreciated currency? No, not likely, but for now that's the game plan for the Swiss.
If the pain for German exporters becomes to great, the ECB may go on a campaign to devalue the euro against the dollar and pound sterling. If the BOJ gets too uncomfortable with the range in which the USD/JPY trades, they will come out with their own brand of manipulation to depreciate the Japanese yen. This is simple stuff, economics 101.
Price is king--
When the SNB and BIS decide to perform an open-market operation to manipulate the price of the EUR/CHF do you think they are looking at a candle chart and worrying about whether or not the EUR/CHF is above/below a moving average or near a Fibonacci line? Of course not, they are looking purely at price and valuation and they are making a determination based on a fundamental and economic basis to re-value and re-price the market.
If Trichet sees the price and valuation of the EUR/USD at the 1.4200 level and knows the price differential between the euro and dollar is not favorable for the Eurozone, he and his ECB comrades can and will talk it down. Or, if Trichet sees a deflationary situation in Europe he will absolutely talk the euro up against the dollar. That's how these markets work, that's how they move and what makes them move.
Another case... a few weeks ago the Dow and S&P 500 broke above the so-called "magical" 200-day moving average and all the tech traders got excited because this was supposed to mean that equities were going to fly up. Wrong. Ever since that supposed technical breakout occurred, what has happened to the S&P 500 and Dow? They have plunged decisively off their highs.
My point here is to encourage traders to spend a little more time staying on top of the real underlying factors which determine price and valuation in the currency market and to spend less time looking for some kind of a holy grail indicator that cannot produce consistent results and causes undo stress. Concerning yourself over trends or whether a currency pair is above/below a moving average can distract you from staying on the right side of the market, that's why all the Forex brokers give that crap away because its extremely distracting and causes confusion and chaos in the retail FX market.
The fallacy of an established trend:
I often get questions from other traders about what kind of trend the dollar or euro or pound sterling is in. I trade repeated cyclical price action patterns so the "pain" that goes into finding a trend isn't something I ever really have to deal with. But, in my opinion, the idea that any of the markets like crude oil, gold, the S&P 500, or currency pairs like the EUR/USD and GBP/USD are in some kind of established trend is a joke. Those markets are moving purely based on the two emotions which control the behavior of market participants and dictate where they send their money-flows -- fear and greed.
Right now the Forex, equity, and commodity markets are moving in ranges, not trends. The reason they are moving in ranges is because that's exactly what the central bankers want. It's no coincidence that one week central bankers from the US, Europe, and Asia talk up the dollar and then the next week they talk down the dollar. This isn't bipolar verbal manipulation that's going on, this is a well coordinated, organized, and predetermined plan to keep all the majors and crosses in a specific range.
There is no such thing as a single currency and the fact they are all paired up together means the central bankers need to coordinate their efforts to prevent any one pair from falling into an established upside or downside trend move. The coordinated efforts between the banks are also designed to temporarily prevent the dollar and US dollar Index from breaking through key resistance or support zones. If you were to inject some truth serum into the central bankers they would all tell you the exact same thing I'm telling you now.
Economic and financial agendas need to be met and this requires their respective currency to go through short-term periods of appreciation or depreciation. Take the Swiss for example... right now the Swiss are most concerned with Eastern European debtors paying their Swiss creditors so they are manipulating the value of the Swiss franc. Will it always be in the interest of the Swiss to have a depreciated currency? No, not likely, but for now that's the game plan for the Swiss.
If the pain for German exporters becomes to great, the ECB may go on a campaign to devalue the euro against the dollar and pound sterling. If the BOJ gets too uncomfortable with the range in which the USD/JPY trades, they will come out with their own brand of manipulation to depreciate the Japanese yen. This is simple stuff, economics 101.
Price is king--
When the SNB and BIS decide to perform an open-market operation to manipulate the price of the EUR/CHF do you think they are looking at a candle chart and worrying about whether or not the EUR/CHF is above/below a moving average or near a Fibonacci line? Of course not, they are looking purely at price and valuation and they are making a determination based on a fundamental and economic basis to re-value and re-price the market.
If Trichet sees the price and valuation of the EUR/USD at the 1.4200 level and knows the price differential between the euro and dollar is not favorable for the Eurozone, he and his ECB comrades can and will talk it down. Or, if Trichet sees a deflationary situation in Europe he will absolutely talk the euro up against the dollar. That's how these markets work, that's how they move and what makes them move.
Another case... a few weeks ago the Dow and S&P 500 broke above the so-called "magical" 200-day moving average and all the tech traders got excited because this was supposed to mean that equities were going to fly up. Wrong. Ever since that supposed technical breakout occurred, what has happened to the S&P 500 and Dow? They have plunged decisively off their highs.
My point here is to encourage traders to spend a little more time staying on top of the real underlying factors which determine price and valuation in the currency market and to spend less time looking for some kind of a holy grail indicator that cannot produce consistent results and causes undo stress. Concerning yourself over trends or whether a currency pair is above/below a moving average can distract you from staying on the right side of the market, that's why all the Forex brokers give that crap away because its extremely distracting and causes confusion and chaos in the retail FX market.
